Difference between Market Cap and Revenue

There are many ways that can be used to see the value of a company. One way is to look at the market cap or market capitalization. On the other hand, you can see the revenue obtained in a certain period.

These two things are actually very different. Unfortunately, many people still misinterpret the difference between market cap and revenue of a company. To find out more clearly, see the meaning of each of these terms below.

Understanding Market Capitalization

Market cap is the value of a company as seen from its share price. Basically, this aspect looks at the amount of money needed to buy the company based on its overall share price.

Calculation of the value of market capitalization can still be done whether the company has not yet been listed on the stock exchange market or not. What is different is that the market capitalization value will fluctuate when some of its shares are released to the stock market.

Market cap will provide a simple picture of the value of the company without considering other aspects. The reason is, you don't need to look at debt, growth potential, or assets owned by the company. This market cap will become a matrix for the public to see the reputation and sentiment of society more broadly.

Understanding Revenue

On the other hand, looking at the company's revenue will make it much simpler to see the value of the company. Revenue is the amount of money earned by a company from the sale of goods and services to consumers. However, you will not see the profits resulting from the transaction.

For your information, revenue is the top aspect recorded in the profit and loss report. However, the tax included in the selling price is not included in revenue. This value is collected by the company on behalf of the state so it is not included in the income in the report.

Later, this revenue will be reduced by all existing costs until net profit is obtained. In a business, investors often consider revenue from a company to see its financial health and future business opportunities.

Difference between Market Cap and Revenue

As previously mentioned, market cap can be calculated based on a company's share price. Take for example when a company has a share price of Rp. 5,000 and there are as many as one million shares in circulation.

You just need to multiply everything to get the market capitalization value. In other words, the market cap value of the company is IDR 1 billion.

On the other hand, revenue has nothing at all to do with share value. The size of a company's revenue will not have a direct impact on a company's share price in the market. It could be that there are companies that have a high market cap, but the revenue they get each month is relatively low.

There are many start-up companies that are often considered potential by many investors. This is what makes their share prices soar in the market. Unfortunately, many startups are unable to sell their products so the revenue they get is small.

This is different from automotive companies which have relatively high revenues. Moreover, the vehicle product is well received by the public and becomes the main choice on the market. With this high revenue, automotive companies actually have quite a big business opportunity.

Unfortunately, many automotive company shares are less attractive in the eyes of investors and traders. This makes demand for automotive company shares very small. It is not surprising that many automotive companies are often on the verge of bankruptcy because their market cap is relatively low.

For this reason, you need to understand more deeply the difference between market cap and revenue when running a business or when becoming an investor. Adding insight into financial analysis can help you find important aspects needed to create a company's financial reports. Get all these insights in the Financial Analysis Program to help you optimize financial strategies in business.